I’m a first-time homebuyer, and this seems like a sweet offer, but is there something I’m missing? Anyone got insights?
Builders often need to sell a certain number of homes quickly to move forward with their next projects. To speed things up, they offer deals like this one.
I know someone here who got a 30-year fixed at 4.25% from a builder who was trying to close things quickly. The builder offsets their upfront costs by finishing the homes and selling them off quickly.
@Finley
Not to sound clueless, but… how do builders even offer mortgage rates? Don’t they need to know if the buyer qualifies first?
Ren said:
@Finley
Not to sound clueless, but… how do builders even offer mortgage rates? Don’t they need to know if the buyer qualifies first?
They often have their own lending companies or partnerships with lenders. You typically have to use their lender to get the deal, and the builder usually gets some kind of profit from this arrangement, either through ownership or a kickback.
The buyer still needs to qualify for the offer, like having a good credit score and being approved for the mortgage. But these deals often come with strings attached, like higher fees or rates that increase after a couple of years.
If you’re curious, there are some good videos online. Search for ‘new construction interest rate incentives’—you’ll find plenty of helpful explanations.
@Whit
Builders also like to sweeten deals in ways that don’t lower the house price outright. It’s kind of like car sales—they might not make money on low-interest financing, but it helps them close deals. Same logic applies to homes that aren’t selling as fast.
@Finley
What area are you looking at? I’m thinking about buying new too.
Thorne said:
@Finley
What area are you looking at? I’m thinking about buying new too.
Actually, I’m in a different state. Sorry!
Jo said:
What happens after the two years? If it’s a 30-year mortgage, this deal only covers a tiny fraction of the term.
Sounds a little ominous—like there’s some sneaky stuff in the fine print.
@Eli
Exactly! It’s like, ‘Here’s a great deal… but after that, good luck!’ Definitely look into the long-term terms.
I think it’s a buy-down, not a buyout. The builder pays to lower your interest rate for the first two years, then it jumps to the regular rate. It’s common and works if you expect to earn more money in a few years to handle the higher payments.
Usually, the catch is that you pay more for the house than it’s actually worth. Even a $10,000 overpayment can take years to recover. I’ve seen homes overpriced by $60,000 just to make these ‘deals’ work.
It’s not really a ‘catch,’ but builders don’t like lowering home prices because it messes with future sales. Instead, they offer things like buy-downs because it’s more flexible and doesn’t affect public records.
For a two-year buy-down, the builder is covering the difference in interest, but your payments will go up after two years. It’s good if you need time to save or expect your income to increase. Just keep in mind that they might push you to use their lender, and fees or rates after the buy-down period might not be great.
@Rin
They might also require you to use their title company. It’s another way they can cut costs.
Ben said:
@Rin
They might also require you to use their title company. It’s another way they can cut costs.
Not always, though. Many builders don’t own title companies. Big ones like FATCO don’t give kickbacks either.
It might just be the usual taxes and insurance adding to the cost.
Answering your title question: ‘It probably is too good to be true!’
Teo said:
Answering your title question: ‘It probably is too good to be true!’
Well said! It’s always good to stay cautious with these offers.
Here’s how it usually works:
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It’s a buy-down, not an adjustable-rate mortgage (ARM). The rate starts low for two years, then goes up to the final locked rate—like 5.9% for the remaining term.
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Builders work with lenders to offer these rates, often covering part of the cost themselves. Requirements usually include a good credit score and a decent down payment.
If you need help reviewing your loan estimate, let me know. Builders’ loan officers aren’t always great, but the rates can be hard to beat.
The builder is inflating the price of the house to offset the cost of offering a lower interest rate. That higher price affects your property taxes, insurance, and total loan amount, so you’re paying more in the long run. It might make more sense to ask them to reduce the purchase price instead.
The short-term rate reduction might sound good, but two years isn’t much in the long run. If you love the house and it fits your budget long-term, go for it. Just don’t let a temporary discount sway you too much.